1. © 2006 Prentice Hall, Inc.1 – 1 Operations Management Chapter 1 – Operations and Productivity Chapter 1 – Operations and Productivity © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e

2. © 2006 Prentice Hall, Inc.1 – 2 What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

3. © 2006 Prentice Hall, Inc.1 – 3 Organizing to Produce Goods and Services  Essential functions:  Marketing – generates demand  Production/operations – creates the product  Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

4. © 2006 Prentice Hall, Inc.1 – 4 Critical Decisions Made by Operations Managers  Service and product design  Quality management  Process and capacity design  Location  Layout design  Human resources and job design  Supply-chain management  Inventory planning, and JIT Table 1.2 (cont.)

5. © 2006 Prentice Hall, Inc.1 – 5 Where are the OM Jobs? Figure 1.2

6. © 2006 Prentice Hall, Inc.1 – 6 Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

7. © 2006 Prentice Hall, Inc.1 – 7 Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledge-based  Frequently dispersed

8. © 2006 Prentice Hall, Inc.1 – 8 Goods Versus Services Table 1.3 Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service

9. © 2006 Prentice Hall, Inc.1 – 9 Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a GoodPercent of Product that is a Service 100%7550250255075100% ||||||||| Figure 1.4

10. © 2006 Prentice Hall, Inc.1 – 10 Organizations in Each Sector Sector Approximate % of all jobs in U.S. Economy Service 80% (78.6%) Manufacturing 20% (21.4%) Table 1.4

11. © 2006 Prentice Hall, Inc.1 – 11 Organizations in Each Sector Manufacturing Sector Example % of all Jobs Manufacturing General Electric, Ford, U.S. Steel, Intel 11.5 Construction Bechtel, McDermott 7.9 Agriculture King Ranch 1.6 Mining Homestake Mining 0.4 Table 1.4

12. © 2006 Prentice Hall, Inc.1 – 12 Organizations in Each Sector Service Sector Example % of all Jobs Education, Legal, Medical, and other Notre Dame University, San Diego Zoo, Arnold Palmer Hospital 25.5 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstrom’s 15.1 Utilities, Transportation Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express 5.2 Table 1.4

13. © 2006 Prentice Hall, Inc.1 – 13 Organizations in Each Sector Service Sector Example % of all Jobs Professional and Business Services Snelling and Snelling, Waste Management, Pitney-Bowes 10.1 Finance, Information, Real Estate Citicorp, American Express, Prudential, Aetna, Trammel Crow, EDS, IBM 9.6 Food, Lodging, Entertainment Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures 8.5 Public Administration U.S., State of Alabama, Cook County 4.6 Table 1.4

14. © 2006 Prentice Hall, Inc.1 – 14 120 120 – 100 100 – 80 80 – 60 60 – 40 40 – 20 20 – 0 0 – ||||||| 1950197019902010 (est) 196019802000 Employment (millions) Manufacturing and Service Employment Figure 1.5 (A) Manufacturing Service

15. © 2006 Prentice Hall, Inc.1 – 15 Development of the Service Economy Figure 1.5 (C) United States Canada France Italy Britain Japan W. Germany 19702008 (est) ||||| 4050607080 Percent

16. © 2006 Prentice Hall, Inc.1 – 16 Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve this measure of efficiency Important Note! Production is a measure of output only and not a measure of efficiency

17. © 2006 Prentice Hall, Inc.1 – 17 Feedbackloop Feedback loop Outputs Goods and servicesProcesses The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%). The Economic System Inputs Labor, capital, management Figure 1.7

18. © 2006 Prentice Hall, Inc.1 – 18  Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used

19. © 2006 Prentice Hall, Inc.1 – 19 Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000250 Labor Productivity

20. © 2006 Prentice Hall, Inc.1 – 20 Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity =  Also known as total factor productivity  Output and inputs are often expressed in dollars

21. © 2006 Prentice Hall, Inc.1 – 21 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: = Old labor productivity 8 titles/day 32 labor-hrs

22. © 2006 Prentice Hall, Inc.1 – 22 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr

23. © 2006 Prentice Hall, Inc.1 – 23 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: 14 titles/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs

24. © 2006 Prentice Hall, Inc.1 – 24 Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Old System: 14 titles/day New System: 8 titles/day 32 labor-hrs = Old labor productivity =.25 titles/labor-hr 14 titles/day 32 labor-hrs = New labor productivity =.4375 titles/labor-hr

25. © 2006 Prentice Hall, Inc.1 – 25 Collins Title Productivity Change in Productivity: New – Old Old Old Old Productivity =.25 titles/labor-hr New Productivity =.4375 titles/labor-hr.4375 -.2500 =.75 or 75% change.4375 -.2500 =.75 or 75% change.2500.2500